Multitude of lenders
Egypt represents the largest recipient of international financial institution (IFI) lending in the MENA region and provides an interesting example of the confluence of different multilateral lenders. A number of these institutions are active in Egypt, including:
While Egypt has consistently received the highest proportion of IFI lending in the region, the past few years have seen a sharp increase in borrowing following Egypt's reclassification by the World Bank as a "middle income" country. Combined with its willingness to implement business-friendly reforms (see "World Bank applauds Egypt's pro-investment reforms as workers go on strike"), this has heralded a major influx of IFI lending to private companies investing in Egypt.
The European Investment Bank in particular has significantly increased its involvement, becoming the largest multilateral lender in the country and investing over €2.3 billion in private companies over the past five years alone, much of it for natural gas production.
The number of multilateral donors operating in the country presents a significant challenge for civil society. Though the overall goals of these varied institutions may be similar - trade liberalization, deregulation of state institutions and the push for an investor-friendly "business climate" - it can be difficult to navigate the broad array of donor interests. Considering the serious lack of transparency and consultation about their activities, it can be difficult to hold these institutions accountable.
Read more about the activities of each of these institutions in BIC's Egypt country study:
Privatization
The World Bank, International Monetary Fund (IMF) and other multilateral donors are pursuing an ambitious economic reform agenda in Egypt rooted in the privatization and restructuring of national institutions and services. While the privatization of over half of Egypt's banking assets has perhaps received the most attention, the IFIs have encouraged the government to introduce private sector participation into a number of other sectors as well, such as the railways, ports, and the water, sanitation, and irrigation sector. Similar initiatives have proven highly controversial in other countries, and the purported development benefits are by no means clear.
Egypt's privatization process has been plagued by a lack of transparency. In the case of banking reform, the parliament reportedly did not know about the sale of several public banks under the government's $8.7 billion program to liberalize the finance sector. The World Bank and African Development Bank each has loaned $500 million for this financial sector privatization process; in the case of the AfDB, the contribution represented the single largest loan in the Bank’s history. However, the persistent lack of transparency raises questions about the legitimacy of the decisions to privatize those public assets.
Similarly, issues stemming from the World Bank-backed sale of Egypt's pension system under the financial sector reform program could result in crisis down the road. Credible evidence suggests that the government-run pension system was privatized without adequate preparation and oversight, and that the financial structures now responsible for maintaining the system lack the capacity to manage it properly. The impact of these major shifts in public management may not be felt in the near term, but significant concern remains that the situation could boil over in 20 or 30 years.
Meanwhile, the World Bank's private sector arm, the IFC, came under pressure last year for its participation in privatizing the national department store chain, Omar Effendi. Critics charge that the sale price of the lucrative business to Saudi investors was too low. The World Bank typically plays an oversight role over such procurement processes, and it remains unclear why the process was allowed to proceed despite being fraught with irregularities. Last year, the IFC invested $40 million in expanding the company's operations, and also purchased a 5 percent equity stake.
Climate Change
While the issue of climate change is often eclipsed by more immediate concerns such as the high unemployment rate and the food and energy crises that plague the country, Egypt's vulnerability to climate-related impacts represents a looming challenge with major implications for Egypt's poor. Already, rural farmers in the Nile Delta have suffered from salt water encroaching from a rising Mediterranean Sea and affecting their crops, and recent studies predict massive displacement resulting from rising sea levels in the densely populated Delta in the longer term.
Meanwhile, the World Bank has indicated that it intends to play a major role in crafting and implementing Egypt's approach to address the anticipated impacts of climate change. This comes as no surprise, since the World Bank is seeking to reposition itself as the premier institution in dealing with climate change globally. However, the Bank's efforts to consult Egyptian civil society have been negligible, and there is little evidence that the Bank's interventions on combating climate change to date have been effective. In the case of Egypt, for example, the Bank reportedly assisted the government in qualifying for carbon credits for reducing pollution, despite failing to demonstrate that the project actually reduced the promised emissions.